Bulletin

13 April 2012

Australian consumers optimistic but still cautious about house price outlook
Over 75% see stable or modestly rising prices over next 12mths
The Westpac-Melbourne Institute Consumer House Price
Expectations Index slipped 2.3pts from 25.1 in January to 22.8 in April. Although slightly less positive on the price outlook, the cautious optimism that emerged between October and January has carried through to April. Consumers remain uncertain about the outlook for house prices. Most (45%) expect them to be higher in 12mths. However, a third expect prices to be unchanged and 22% expect them to decline. The latter is virtually unchanged from the January survey with the main shift being from the 'rise' to the 'no change' camp. The survey detail shows those in first home buyer (FHB) age-groups continue to be the dominant driver of shifts. Our FHB composite fell 6.7pts between January and April after surging 22.9pts between October and January. In contrast, our upgrader and investor composites both showed slight improvements, though they remain more downbeat than FHBs. State trends were particularly striking in the April survey. House price expectations continued to surge in WA with an outright majority (51%) expecting gains and only 9% expecting falls. Interestingly, Victorians also reported a continued turnaround with an outright majority (51%) now calling gains there as well. All other major states recorded downgrades to house price expectations with by far the biggest coming in Queensland where about half of the big surge reported in January reversed. Somewhat curiously the resource states cover both the most optimistic (WA) and the most pessimistic (Qld) consumer views on house prices. Our analysis suggests there may also be useful insights from the detailed distribution of house price expectations. The proportion of extreme price 'bulls', those expecting 'rise >10%', shows more of a correlation with the proportion of consumers nominating real estate as the 'wisest place for savings' than the overall view on house prices. This suggests expectations of strong gains (i.e. not just regular rises) are a prerequisite for investor interest in the sector. Similarly, the proportion of extreme price 'bears', those expecting 'falls >10%' shows some (albeit loose) correlation with consumer responses on 'time to buy a dwelling'. The implication here may be that these consumers see buyers as having more bargaining power in an environment of declining prices (although the converse is that they would not expect to make a capital gain on the asset). Overall, the 'cautiously optimistic' view on house prices augurs well for a continued soft landing in Australia's housing markets. However, there is an air of fragility to the situation. Consumers are more positive on the price outlook but optimism is not building in the same way it did in 2009. Clearly that is due to the much milder stimulus coming from both interest rates and fiscal measures. More may be required to ensure a recovery. Matthew Hassan, Senior Economist, ph (61-2) 8254 2100 Consumer house price expectations April 2012
% responses expecting: Rise Aus NSW Vic Qld SA WA 5.4 4.2 6.8 5.5 3.1 9.5 39.6 41.1 44.4 28.2 41.7 40.8 No 32.7 30.7 27.0 40.4 34.3 40.6 Fall 18.1 20.5 15.4 22.3 15.1 8.9 4.1 3.5 6.3 3.6 5.7 0.2 >10% 010% change 010% >10% House Price Expectation Index* Jan 25.1 26.8 17.5 27.0 27.3 32.7 Apr 22.8 21.3 29.6 7.8 24.0 41.3

*% expecting rise minus % expecting fall. Figures exclude those reporting "no opinion".
Source: WestpacMelbourne Institute

Consumer expectations for house prices

100 220 75 200 180 50 160 25 0 140 -25 120 100 -50 80 60 40 20 0 index index 100 75 50 25 0 -25 -50 80 -75 60 -100 40 -125 20 -150 -175 0

Source: Westpac-Melbourne Institute, *Mortgage Choice (Nov-08 observation)

%responses

fall

no change

rise

Nov-08*

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

House price expectations by buyer*

100 80 60 40 20 0 -20 May-09
Source: Westpac-Melbourne Institute

net %

net %
*composite based on weighted responses by age-group; % reporting expected rise minus % reporting expected fall

100 80 60 40

FHBs upgraders investors

20 0 -20

Nov-09

May-10

Nov-10

May-11

Nov-11

May-12

Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141. Information current as at date above. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Westpacs financial services guide can be obtained by calling 132 032, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. Westpac operates in the United States of America as a federally chartered branch, regulated by the Office of the Controller of the Currency and is not affiliated with either: (i) a broker dealer registered with the US Securities Exchange Commission; or (ii) a Futures Commission Merchant registered with the US Commodity Futures Trading Commission. If you wish to be removed from our e-mail, fax or mailing list please send an e-mail to economics@westpac.com.au or fax us on +61 2 8254 6934 or write to Westpac Economics at Level 2, 275 Kent Street, Sydney NSW 2000. Please state your full name, telephone/fax number and company details on all correspondence. 2012 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

13 April 2012

House price expectations by state

100 80 60 40 20 0
*% reporting expected rise minus % reporting expected fall
Source: Westpac-Melbourne Institute

House prices: actual vs expected by state

net % 100 80 60 40 20 0 140 120 100 80 60 40 20 0 -20
Aus
Source: Westpac, Melbourne Institute, RP Data-Rismark

net % NSW Vic SA Qld WA

ann %

ann% expectations next 12 months (lhs)* actual last 12 months (rhs)^

*net% expecting prices to rise, ^capital cities, all dwellings, latest reading is for month to date

30 25 20 15 10 5 0 -5 -10

-20 -20 Jan-09 Jan-10 Jan-11 Jan-12 May-09 Apr-10 Apr-11 Apr-12

NSW

Vic

Qld

SA

WA

House price expectations by age group

net % 100 80 60 40 20 0
*% expecting rise minus % expecting fall
Source: WestpacMelbourne Institute

House price expectations: selected groups

net % 100 100 80 60 60 40 20 0 -20 40 20 0 -20 Jan-09 Jan-10 Jan-11 Jan-12
*% reporting expected rise minus % reporting expected fall
Source: Westpac-Melbourne Institute

net %

18-24 25-34

35-44 50-54

45-49

55-64 65+

gender male

female

rent

housing mortgage

net % freehold

100 80 60 40 20 0 -20

80

-20 Jan-09 Jul-10 Jan-12 Oct-09 Apr-11 Jan-09 Jul-10 Jan-12

Oct-09 Oct-10 Oct-11

House prices, actual vs expected

150 125 100 75 50 25 0 -25
Source: RP Data-Rismark, Mortgage Choice, Westpac-Melbourne Institute

Consumer expectations for house prices

100 90 80 70 60 50 40 30 20 10 0
Nov-08* Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

net%* ann% 30 expectations, next 12mths (Westpac-MI survey, lhs) expectations, next 12mths (Mortgage Choice survey, lhs) 25 actual dwelling prices, previous 12mths (rhs) 20
*% expecting prices to rise minus % expecting prices to fall

%responses Fall No-change

Sources: WestpacMelbourne Institute, Mortgage Choice

%responses Rise
regular survey months are Jan, Apr, Jul, Oct *Nov-08 figures are from a similar survey conducted by Mortgage Choice

100 90 80 70 60 50 40 30 20 10 0

15 10 5 0 -5 -10

-50 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11

Consumers: house price bulls vs savings views

30 25 20 15 10 5 0 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12
Sources: Melbourne Institute, Westpac Economics

Consumers: house price bears vs time to buy

26 24 22 20 18 16 14 12 10 9 8 7 6 5 4 3 2 1 0 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12
Sources: Melbourne Institute, Westpac Economics

% % expecting house prices to rise >10% wisest place for savings: real estate (rhs)

% % expecting house prices to fall >10% time to buy a dwelling (rhs)

index 160 140 120 100 80

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.